Wages hitting ‘sense of prosperity’: RBA

The Reserve Bank of Australia is only likely to raise interest rates after an improvement in the slow wages growth that governor Philip Lowe says is “diminishing our sense of shared prosperity”.

Dr Lowe says low wage growth means inflation is unlikely to meet the RBA’s two-to-three per cent target range, and is affecting people’s ability to pay off large loans taken out in expectation of future income increases.

Dr Lowe says any move in the cash rate by the RBA, which last week kept the cash rate at 1.5 per cent for a 22nd consecutive month, is still a way off despite promising economic signs.

“Whatever weight one places on these various factors constraining wages growth, it is clear that the slow growth in wages is affecting our economy,” Dr Lowe said in a speech to the Australian Industry Group in Melbourne on Wednesday.

Dr Lowe said a pick up in wage growth would help put inflation in line with the RBA’s target, help Australians pay down debt, and add to consumers’ sense of prosperity – which has implications for increased consumption.

“There are some signs that wage growth is moving in the right direction, but it is likely to be a gradual process,” he said.

Dr Lowe said last week’s economic data showed the Australian economy is moving in the right direction

The economy expanded 1.0 per cent in the March quarter and grew 3.1 per cent over the 12 months to March, beating expectations.

“If this continues to be the case, it is likely that the next move in interest rates will be up, not down,” Dr Lowe reiterated.

“The board will want to have reasonable confidence that inflation is picking up to be consistent with the medium-term target and that slack in the labour market is lessening.”

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